Companies are trying to lure customers with offers of student loan help

JillianBerman

Reporter

Companies have finally woken up to a huge and potentially profitable market: Student borrowers.

Gradifi, a Boston-based startup that works with employers who pay down a portion of their employees’ student loans, and Radius, an online-focused bank, announced Tuesday that they’re partnering to offer a debit card that will give users 1% back on all of their purchases toward their student loan. The card will be available this fall. In a separate announcement Tuesday, Fidelity Labs, an in-house incubator at Fidelity Investments, unveiled the pilot version of a student loan help tool they’re developing.

The offerings come as student debt is increasingly becoming a universal American experience — roughly 70% of bachelor’s degree recipients graduate with a student loan. What’s more, as the cost of college pushes more parents and grandparents to take on loans to help their children finance school, Americans are wrestling with education debt during their golden years. And companies want to tap into this growing demographic.

“There’s definitely a market for trying to help people manage their student debt,” said Mark Huelsman, a senior policy analyst at Demos, a left-leaning think tank. “As long as we don’t deal with this on a policy level you’re bound to see more financial institutions and other companies use student debt as a hook get customers.”

Gradifi first launched its platform — which allows employers to securely put money toward their workers’ student loans — in September. So far, more than 400 companies have contacted the firm about setting up student loan repayment programs for their workers, according to the company’s chief executive, Tim DeMello. DeMello and other company officials realized that their platform doesn’t just interest employers. “Brands are really interested in this audience,” DeMello said.

Gradifi/Radius

The Gradifi/Radius debit card.

This demographic may be particularly important to players in the credit and debit card space, given that it’s so competitive. Providers are “falling all over themselves,” to offer the best rewards, said Matt Schultz, a senior industry analyst at CreditCards.com, a credit-card comparison site. Cash back-style offerings are a favorite of consumers and given that so many Americans have student debt offering student loan help as a card reward is a “reasonable, understandable thing to do,” Schultz said.

Mike Butler, the chief executive of Radius, said he’s hoping the partnership with Gradifi will ultimately double the number of accounts opened with his company by millennials or student loan borrowers of all ages. Radius offers no-fee, online-only checking accounts and, since they don’t have physical locations, they’ll also reimburse customers for ATM fees. They average 500 new account openings a week, Butler said. Users just need a $10 minimum deposit to open the account.

Partnerships with Gradifi and similar organizations allow Radius to “draw clients through their organization that we think will want to do business with us,” he said.

At Fidelity Labs, officials are hoping that their student loan help tool will allow the company to be a part of a user’s financial life early on so they can continue to work with them in the future. The tool, which so far is limited to an invitation-only test phase Fidelity is offering to some employees of its corporate clients, draws down a borrower’s student loan information from a government portal (borrowers with private loans enter that information manually) and then allows them to sort through different repayment options, including federal government repayment programs, to get a sense of their monthly payments, interest costs and duration of the loan depending on how they choose to pay them off.

“We want to show people that there is a way to make these financial decision in parallel,” said Akhil Nigam, the head of several Fidelity Labs incubators. “You don’t have to think about this as ‘I have to pay down my student loan debt and then think about retirement,’ maybe you can do a little bit of both at the same time.”

Fidelity Labs

The Fidelity Labs took allows users to see how long they would be paying off their loans under different plans.

Helping borrowers better manage their student loan debt is particularly important for a company like Fidelity, which is perhaps best known for its retirement planning services. Studies show that student loan borrowers struggle to save for retirement. Roughly one-third of customers in workplace retirement accounts managed by Fidelity have student loans, according to a survey administered by the company. Of those, 80% said the loans impacted their ability to save for retirement and two-thirds changed their retirement plan in some way, including lowering or stopping their contributions or by taking loans or hardship withdrawals.

“We can’t be in the business of helping people plan for the future without helping people figure out the present,” said Asha Srikantiah, the director of design, thinking and innovation at Fidelity.

Fidelity, which announced earlier this year that it would help its employees pay off a portion of their student loans, appears to be an early adopter in the student loan help market, and Huelsman said that sector, which is already booming, is only likely to grow. Over the past few years an entire industry has cropped up surrounding employer student loan benefits; in addition to Gradifi, other firms, including Tuition.io, which is working with Fidelity on its perk, are working with employers to offer their workers student loan repayment help. More companies are also offering to help borrowers refinance their student loans.

“For as long a student debt is going up and for as long as borrowing is basically guaranteed if you want any kind of degree, you’re going to see financial institutions get into that marketplace and find consumers that way,” he said.

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